Novelis Reports 3Q Results for Fiscal 2012

OREANDA-NEWS. February 9, 2012. Novelis Inc, the world’s leading producer of aluminum rolled products, reported a net loss attributable to its common shareholder of USD 12 million for the third quarter of fiscal 2012.  Adjusted EBITDA for the quarter was USD 213 million as compared to USD 238 million for the same period of the previous year.

These are good results, particularly when you consider the market pressures we saw in most of our regions and the fact that this is our seasonally low quarter. Our business model serves as a competitive advantage by reducing our overall exposure in volatile market conditions, said Phil Martens, President and Chief Executive Officer, Novelis.  “Our premium product portfolio, long-term customer base and business model are what differentiates us in our industry. As a result of this, our EBITDA per ton was flat versus last year on a 9 per cent decline in shipments. Going forward, we are seeing a recovery, particularly in our European segment, which was the most negatively impacted in the third quarter. For the full year, we are on par with last year’s record EBITDA results, despite the softer volumes we’ve experienced this year.”

Shipments of aluminum rolled products totaled 648 kilotonnes for the third quarter of fiscal 2012 compared to shipments of 715 kilotonnes in the third quarter of the previous year. This decrease in shipments was primarily a result of customer destocking in Europe due to economic uncertainty and continued weakness in the company’s electronics business in Asia. 
Net sales for the third quarter of fiscal 2012 were USD 2.5 billion, a decrease of 4 per cent compared to the USD 2.6 billion reported in the same period a year ago, mainly the result of lower shipments and a decrease in average aluminum prices compared to the same period last year. 

The company reported a pre-tax loss of USD 21 million for the third quarter of fiscal 2012, compared to a pre-tax loss of USD 2 million for the same period of fiscal 2011.  Excluding restructuring charges, unrealised losses on derivatives and gain on sale of assets, adjusted pre-tax income was USD 42 million for the third quarter of fiscal 2012.
“Our results this quarter were impacted by softer demand in Europe and Asia, reducing our ability to absorb fixed costs and higher net interest expense as a result of our debt refinancing last year,” said Steve Fisher, Chief Financial Officer for Novelis.

For the third quarter of fiscal 2012, Novelis reported solid liquidity of USD 857 million and free cash flow of USD 63 million.  The decrease in liquidity compared to the previous quarter primarily relates to short-term borrowings used to purchase the 31.2 per cent minority interest in the company’s Korean operations.  “As expected, we continued to generate strong cash flow, in part because of our ability to react quickly in this environment and manage our global inventory position down nearly 60 kilotonnes,” said Fisher.  “Free cash flow for the quarter was also robust given we doubled our capital expenditures year-over-year. Going forward, we expect continued strong cash flow generation, which will enable us to fund our strategic expansion projects across the globe.”  

Business outlook
As a result of market pressures and higher than expected destocking levels in several regions in the third quarter, the company revised its adjusted EBITDA guidance down slightly to between USD 1.05-1.08 billion for fiscal 2012. In addition, it reaffirms its fiscal 2012 free cash flow before capital expenditures target of USD 600-700 million and capital expenditures of approximately USD 550-600 million primarily focused on its global expansion projects in Brazil, Korea and North America.

Strategic investments
“Despite the softness we saw in the third quarter, we still believe in the strong long-term growth of the aluminum flat rolled products (FRP) market, which is expected to grow 34 per cent over the next 5 years,” said Martens.

“To this end, you will see us continue to take action to ensure we are best positioned to capture this growth going forward. We are committed to our strategy and continue to execute on our global rolling and recycling expansions.  In addition, as part of our approach to strengthen our operations and gain control over our assets in Asia, we completed the acquisition of the minority stake in our Korean operations in December, bringing our total ownership to over 99 per cent,” he added.

Novelis is a subsidiary of Hindalco Industries Limited (BSE: HINDALCO), one of Asia's largest integrated producers of aluminum and a leading copper producer. Hindalco is a flagship company of the Aditya Birla Group, a multinational conglomerate based in Mumbai, India.